This budget, FM introduced a ‘reform agenda’

Before the clock struck 11am on Budget day, the air was thick with apprehensions. Amit Mitra writes.

Before the clock struck 11am on Budget day, the air was thick with apprehensions. Was the finance minister about to drastically reduce the fiscal deficit at the cost of rising growth trajectory? Was he going to raise excise duty and service tax, thereby creating the potential for more inflationary pressure, with businesses unable to hold the price line?

As the budget speech unfolded, it became evident that the finance minister was going to do none of the above. His focus, instead, was on nurturing growth and stimulating development. He soon took up the critical sectors of agriculture, infrastructure, education and rural development. Also, in a most understated manner, he introduced a fundamental reform agenda that will alter the methodology of how the benefits of public welfare programmes reach the poor.

Direct transfer of subsidies to the target group, for which FICCI had being crying hoarse for a decade, was one of the key takeaways of this budget. We hope that the minister’s ambitious target of generating 10 lakh Unique Identification Numbers per day will become the vehicle for achieving this goal. Now we are looking forward to the possibility of introducing school vouchers for the poor.

We are also looking forward to the possible introduction of food coupons through the UID medium.

The finance minister has recognised another major challenge—the comprehensive development of the country’s farm sector, which is so vital for the stability of the Indian economy and its continued growth. He has, in a very ambitious manner, raised the target for agriculture credit by a whopping R1 lakh crore.

While this should meet the funding requirements of the farmers, what is also needed is a change in the agri-ecosystem with particular focus on research and development and extension services. The minister has not given us any indication on the concrete steps that would be taken to improve the technology profile of our farm sector.

Let us not forget that the productivity of several crops in China is two to three times higher than that of India’s. Development of appropriate technology and its dissemination is thus crucial if the farm sector in India has to improve.

In pursuit of his development dream, the minister has thrown a challenge at the Indian industry. He visualises the GDP share of the manufacturing sector to grow from the present 16% to 25% in the next 10 years. This is a big task and to achieve this objective, we have to have radical reforms in the way we do business in India. We need to introduce procedural reforms.

We also need to free the manufacturing sector from the clutches of the “Inspector Raj”. And above all, we need to convert the vast unorganised sector (employing 92% of our work force) into organised entities. All these pending steps will increase the absorptive capacity of the economy for larger doses of investments.

The minister’s speech has not articulated any of these follow-up steps required for an industrial makeover.

For turning India into a manufacturing hub, the large gaps that exist in skill training and vocational education will also have to be bridged. We were hoping that the finance minister would announce a target of expanding the number of Industrial Training Institutions from the present 2,000 to 10,000 over the next five years and then to 50,000—a number which still would be less than half of what China has today.

Nevertheless, we applaud his philosophic underpinning of nurturing growth and touching the lives of those at the bottom of the pyramid.